Chapter 11 Bankruptcy is a fairly complex and time consuming process as compared to Chapter 7 and Chapter 13. Although the Bankruptcy Code and Bankruptcy Rules tend to be the same for all Chapters with some procedural differences specific to each, Chapter 11 Reorganization Under the Bankruptcy Code is not an always as straight forward or routine of a process. Since Chapter 11 is primarily used by businesses to reorganize their financial affairs there is usually some component in each Chapter 11 case that is different from another Chapter 11 case. Each business that files for Chapter 11 Bankruptcy has a different set of circumstances and reasons preceding or motivating the filing. Often financially burdened or debt beleaguered companies will wait to the last minute before seeking legal advice as to their options under Chapter 11 Bankruptcy. As such Businesses considering seeking bankruptcy relief under Chapter 11 should know when to contact an attorney. Should a company choose to file for Chapter 11 Bankruptcy it must utilize an attorney to do so, and hopefully one who is experienced in handling Chapter 11 Bankruptcy matters. If you or your company are located in Houston, San Antonio, Austin, or Dallas metro area and have questions About Chapter 11 Bankruptcy contact The Law Offices of R.J.Atkinson,LLC to discuss your company’s legal options under Chapter 11 Bankruptcy. Please find some of the most frequently asked questions About Chapter 11 Bankruptcy below, and remember don’t wait until the last moment to seek relief under Chapter 11 as planning is everything.

Frequently Asked Chapter 11 Questions - Answers

What is a Chapter 11 Bankruptcy?

A Chapter 11 bankruptcy is often referred to as “business reorganization.” Chapter 11 is the reorganization provision under the Title 11 of the U.S. Bankruptcy Code that allows companies to restructure their debts while they continue to engage regular operations or to liquidate operations in an orderly manner. A Chapter 11 Bankruptcy case filed under chapter 11 of the United States Bankruptcy Code is frequently referred to as a business "reorganization" bankruptcy. Also, Chapter 11 Bankruptcy is available to individuals but is rarely used by them.

What Is the Purpose of Chapter 11 Bankruptcy?

The purpose of a Chapter 11 Bankruptcy is to get a repayment plan or plan of reorganization approved by the Bankruptcy Court and allow a Chapter Debtor to repay or restructure its Debt over time. Chapter 11 is typically used to reorganize a business, which may be a corporation, sole proprietorship, or partnership facing financial difficulty. Chapter 11 Bankruptcy’s primary purpose is for the Debtor is to reorganize their Debt through a Bankruptcy reorganization plan approved by the Bankruptcy Court.

Doesn’t Chapter 11 Bankruptcy mean liquidation?

Chapter 11 Bankruptcy is reorganization, not liquidation. The primary purpose of filing Chapter 11 protection is to reorganize a debtor. A Chapter 11 Bankruptcy can also be utilized to liquidate the assets of a business and pay the creditors from the realization or sale proceeds of those assets if a liquidation plan is proposed and approved by the Bankruptcy Court. A Chapter 11 liquidation plan can oftentimes obtain a greater realization for creditors than a Chapter 7 Bankruptcy filing. In a chapter 11 case, a liquidating plan is permissible. Such a plan often allows the debtor in possession to liquidate the business under more economically advantageous circumstances than Chapter 7 liquidation. It also permits the creditors to take a more active role in fashioning the liquidation of the assets and the distribution of the proceeds than in a chapter 7 case.

Can My Company still file bankruptcy after the law change?

Yes. The new law changed the Bankruptcy Code and rules which primarily include certain pre-filing requirements for consumers, but the law did not affect the right of companies and individuals to file for Chapter 11 Bankruptcy protection.

Who can file for Chapter 11 Bankruptcy?

A Business filing for Chapter 11 Bankruptcy can be a corporation, partnership, limited partnership, limited liability company, or sole proprietorship. A bankruptcy case involving a sole proprietorship includes both the business and personal assets of the owners-debtors. Chapter 11 Bankruptcy is also available to individuals not engaged in business but is rarely used by them. Chapter 11 Bankruptcy is primarily utilized by businesses to reorganize their obligations and pay their debts over time. Businesses that choose to take advantage of Chapter 11 relief continue to operate their business while repaying their debts.

What common reasons do businesses or individuals file Chapter 11 Bankruptcy?

Most often Chapter 11 Bankruptcy is utilized by a business or individual with excessive debt to reorganize their financial affairs. Additionally, debtors file for Chapter 11 to reject certain leases or to stop or stay lawsuits, turnover actions, judgments, collection activities, foreclosures, and repossessions of property. When a debtor files Chapter 11 Bankruptcy all such actions against the debtor are suspended and may not be pursued by the creditors on any debt or claim that arose before the filing of the bankruptcy petition with some exceptions.

How long does a Chapter 11 Bankruptcy take?

A chapter 11 bankruptcy case may continue for many years unless the court, the U.S. trustee, the creditors committee (if one is appointed), or another party in interest acts to ensure the case's timely resolution.

How does a Chapter 11 Bankruptcy filing protect the debtor?

Simply put filing for Chapter 11 Bankruptcy stops all collection actions against the debtor while allowing the debtor time to make a plan to reorganize. When a business files for Chapter 11 Bankruptcy it is protected by the automatic stay which takes place immediately upon the filing of the petition. As with all cases under other chapters of the Bankruptcy Code, a stay of creditor actions against the chapter 11 debtor automatically goes into effect when the bankruptcy petition is filed. 11 U.S.C. § 362(a). The filing of a petition, however, does not operate as a stay for certain types of actions listed under 11 U.S.C. § 362(b). The stay provides a breathing spell for the debtor, during which negotiations can take place to try to resolve the difficulties in the debtor's financial situation. No creditor can take any action against the debtor without the court granting relief from the automatic stay.

What is The Discharge in a Chapter 11 Bankruptcy?

The confirmation of a Chapter 11 plan discharges the debtor from any debt or debts arising before the date of confirmation. After confirmation of the plan, the reorganized debtor and its creditors are bound by the terms of the confirmed plan. A confirmed plan creates new contractual rights, replacing or superseding any and all prepetition contracts with creditors. After the plan is confirmed, the debtor is required to make plan payments and is bound by the provisions of the plan of reorganization. There are, of course, exceptions to the general rule that confirmation of a plan operates as a discharge. Confirmation of a plan of reorganization discharges any type of debtor – corporation, partnership, or individual – from most types of prepetition debts. It will not, however, discharge an individual debtor from any debt made nondischargeable by section 523 of the Bankruptcy Code.

What is The Automatic Stay in Chapter 11 Bankruptcy?

The automatic stay is an injunction that takes effect immediately upon the filing of a Chapter 11 Bankruptcy Petition. The automatic stay provides a period of time in which all legal actions against the Debtor, which include judgments, collection activities, foreclosures, lawsuits, and repossessions of property are stayed or suspended and may not be pursued by the creditors on any debt or claim that arose before the filing of the bankruptcy petition. As with cases under other all other chapters of the Bankruptcy Code, a automatic stay of creditor actions against the chapter 11 debtor automatically goes into effect when the bankruptcy petition is filed. The filing of a petition, however, does not operate as a stay for certain types of actions listed under 11 U.S.C. § 362(b). The stay provides a breathing spell for the debtor, during which negotiations can take place to try to resolve the difficulties in the debtor's financial situation. Under specific circumstances, secured creditors can obtain an order from the court granting relief from the automatic stay.

Were there any changes to Chapter 11 Bankruptcy under the new Bankruptcy Law?

Expedited Chapter 11 created for small businesses - Businesses with less than $2 million in debts can file an expedited form of Chapter 11 reorganization.

Real Estate Owners & Investors - unexpired leases on non-residential real estate will automatically be deemed “rejected” if a debtor doesn’t file a motion to assume or reject the lease within 120 days after the commencement of the Chapter 11 Bankruptcy case. The Bankruptcy Court may extend the period, for no more than 90 days, for cause. Any other extensions are only permitted with the lessor’s consent, and a lessor’s ability to recover administrative expenses from the debtor’s estate that assumes a commercial lease and later rejects it is limited to all monetary obligations due under the lease, two years following the date of actual turnover of the leased premises.

Chapter 11 exclusivity period shortened - A Chapter 11 debtor has only 18 months to propose a reorganization plan before creditors are allowed to propose their own plans. Prior to the Act, creditors were barred from making proposals indefinitely due to the debtor's ability to obtain extensions.

Taxing Authority Remedies - There are several provisions affecting the tax liability of all debtors and bankruptcy estates, as well as a taxing authorities’ ability to assert priority claims and seek other remedies. Other changes require that a disclosure statement supporting a proposed plan of reorganization include a broader discussion of Tax consequences and liability issues and adds an exception to the automatic stay empowering Taxing Authorities to offset any Tax refunds owed to debtors against certain unpaid prepetition Taxes.

There are other changes however you should contact an attorney for more information.

What is a Creditor’s Committee?

The U.S. Trustee appoints the creditor’s committee if requested, possible, or deemed necessary. The creditor’s committee usually consists of several creditors who hold the largest unsecured claims in the Chapter 11 Bankruptcy Case. A creditor’s committee may consult with the Debtor on the administration of the case, investigate the debtor's conduct or business operations, and participate in the formulation of a plan of reorganization. Also, the committee can hire its own lawyer, and the legal fees are usually paid from the Debtor's bankruptcy estate. Basically a creditor’s committee is appointed by the U.S. Trustee and monitors the Debtor’s affairs.

Who is the Purpose of The United States Trustee?

The United States Trustee monitors the progress of a Chapter 11 Bankruptcy case. The U.S. Trustee reviews the debtor's monthly operating reports, applications to employ professionals, motions for fees, and any plan or disclosure statement filed in the case. The U.S. Trustee conducts the initial Debtor’s conference and the 341 creditors' meeting at the beginning of the case where their representative and creditors may question the debtor concerning the debtor's conduct, assets, and the plans for reorganization. The U.S. Trustee also imposes certain requirements of the Chapter 11 Debtor such as the filing of monthly operating reports, the opening new Debtor-in-Possession bank accounts, and ensuring the payment of current employee withholding and other taxes. During the pendency of the case the Debtor is required to pay a quarterly fee to the U.S. Trustee. The amount of the fee is based upon the disbursements made in the prior quarter and can add significant expense to a Chapter 11 case.

What is a Debtor-In-Possession?

Upon the filing of a Chapter 11 Bankruptcy Petition the Debtor becomes a Debtor-In-Possession which is exactly as it is stated. The debtor has possession of it’s company and affairs until such time that a trustee is appointed to take control of the Debtor or until the case converts to a Chapter 7. A debtor in possession owes a fiduciary duty to the Bankruptcy Estate and has the powers of a bankruptcy trustee. These duties include accounting for all property, examining claims, objecting to claims, filing tax returns and monthly operating reports as required by the Bankruptcy Court and the United States Trustee. A debtor in possession has the power to employ attorneys, accountants, brokers, or other professionals, subject to Bankruptcy Court Approval. Should a debtor in possession fail to comply with the U.S. Trustee requirements, fail to comply with court orders, or fail to take appropriate steps to propose or submit a plan for confirmation, the U.S. Trustee, a creditor, or party in interest may file a motion to appoint a case trustee, convert the case to Chapter 7, or dismiss the case.

Have any other companies used Chapter 11 Bankruptcy?

Yes. Many companies in the State of Texas and throughout the United States have successfully utilized Chapter 11 Bankruptcy protection to focus on reorganizing their debt and emerging as stronger companies. Some examples of Famous Corporations That Have Filed for Bankruptcy and have emerged in a better position include Texaco, Toys "R" Us, and Continental Airlines. Chapter 11 Bankruptcy is used by both large and small companies to address financial difficulty.

What is Fast Tracking for Small Businesses?

In Texas, a business with debt less than $2,000,000 can elect to be treated as a "small business" Chapter 11. The case is then put on a fast track and is treated differently than is a regular Chapter 11 Bankruptcy case. The primary differences from a regular Chapter 11 are:

A separate hearing to approve the disclosure statement is not mandatory. It may be combined with the confirmation hearing;

The appointment of a creditors' committee is not mandatory;

The Debtor has a shortened period of time which is 100 days from the date of the order for relief, within which only the debtor may file a plan;

After the 100 day period expires any party in interest may file a plan;

however, all plans must be filed within 160 days from the date of the order for relief.

What is a Single Asset Real Estate Debtor?

Just like it sounds, a Single asset real estate Debtor owns a single real estate asset such as an apartment complex, shopping center or strip mall, or similar property. These so named single asset real estate debtors are subject to special provisions of the Bankruptcy Code. The term "single asset real estate" is defined as "a single property or project, other than residential real property with fewer than four residential units, which generates substantially all of the gross income of a debtor who is not a family farmer and on which no substantial business is being conducted by a debtor other than the business of operating the real property and activities incidental.”

Does my Company need an Attorney to File Chapter 11 Bankruptcy?

Yes. Corporations and other business entities in Texas cannot represent themselves in a legal proceeding and require legal counsel. As for Chapter 11 Bankruptcy in Texas the same thing applies.

The entire process of Chapter 11 Bankruptcy proceedings tend to be very complex and time consuming. Businesses considering seeking bankruptcy relief under Chapter 11 must utilize an attorney who is experienced in handling Chapter 11 Bankruptcy cases.

If you or your company are located in Houston, San Antonio, Austin, or Dallas metro area or anywhere else in the Great State of Texas and have questions about business bankruptcy under Chapter 11 please contactThe Law Offices of R.J.Atkinson,LLC at 469-429-0418 for a free initial consultation to discuss your company’s legal options under Chapter 11 Bankruptcy.